A second group seems to be less radical. They reject socialism no less than capitalism. They recommend a third system, which, as they say, is as far from capitalism as it is from socialism, which as a third system of society’s economic organization, stands midway between the two other systems, and while retaining the advantages of both, avoids the disadvantages inherent in each. This third system is known as the system of interventionism. In the terminology of American politics it is often referred to as the middle-of-the-road policy. What makes this third system popular with many people is the particular way they choose to look upon the problems involved. As they see it, two classes, the capitalists and entrepreneurs on the one hand and the wage earners on the other hand, are arguing about the distribution of the yield of capital and entrepreneurial activities. Both parties are claiming the whole cake for themselves. Now, suggest these mediators, let us make peace by splitting the disputed value equally between the two classes. The State as an impartial arbiter should interfere, and should curb the greed of the capitalists and assign a part of the profits to the working classes. Thus it will be possible to dethrone the moloch capitalism without enthroning the moloch of totalitarian socialism.
–Ludwig von Mises, Middle of the Road Policy Leads to Socialism (Included in Planning for Freedom)
In preparing to write this article on the phenomenon of so-called democratic socialism, inspired as it was by the presidential campaign of Bernie Sanders, it struck me as a wondrous vindication of the foresight of Ludwig von Mises, who in the 1950’s exposed the anti-capitalist efforts of the “intellectual class.” One of the ways in which Mises most vigorously challenged them was in their claim that they had found a third way between “the excesses” and “anti-social nature” of capitalism on the one hand, and the problems to be found in the soviet style socialism that had arisen during the 20th century. This phenomenon of interventionism was marketed as a “middle of the road policy” that would bring about the ideal socio-economic state of civilization. Interventionism was supposed to keep some aspects of capitalism and yet regulate, subsidize, and intervene where necessary to bring about a more just economic situation. Mises, though, with piercing logic and in his uncompromising spirit, made the case that government intervention, because it would be harmful for the very people it sought to help, begat intervention; and socialism, not bliss, was the end game of tampering with the economy.
And here we are, a half century since Mises bravely made his lonely case for “unfettered capitalism” against the established opinion of his day, facing the prospects of Bernie Sanders. Interventionism has destroyed us. The trend has been downward sloping from occasional tampering into the economy, one dreary step at a time, toward total control. And interventionism, as Mises said it would, has caused tremendous wreckage of western civilization. What I am claiming here is that it was decades of slowly and consistently tampering with the market system, trying to “make it better,” that has had a snowball effect in both inviting more and more government and each point along the way making things worse. One step at a time, ever closer to socialism. And at long last Keynes’ “long run” is here and Bernie stands ready to seal our fate.
What has democratic socialism to offer and what of the alleged differences with marxist socialism?
Firstly, we should note off the bat that there are indeed a variety of flavors of socialism. In the past on this site (primarily here and here), I have mainly distinguished between three of them: marxism (communism), fascism (corporatism), and Fabianism (stealth, elitist socialism).
In Russian communism [marxism], the State is the supreme power and its will is to be pursued as the goal of political life. It is this way under Nazism and Fabianism as well. But the means to achieve this varies. In the Russian model (we can call this “Leninism”), everything is outright owned by the state and the ruling class gets to make the decisions for all society. Under the Nazi/Fabian model, ownership is nominally in “private” hands, but the control ultimately belongs to the state, who has the authority to determine prices, set regulations, control subsidies, and handout penalties. Whereas the Leninist model is a raw State monopoly, the other models are more of a corporate monopoly, achieved and enforced by the strong arm of the State. This has also been referred to as “Corporatism.” But it is important that we remember it is still a type of socialism.
The Nazi model and the Fabian model, however, find their chief difference in how they present themselves to the masses. Whereas Nazism is about brute military force, the creation of racial conflicts, and the brutal elimination of political opponents by public displays of vicious behavior, Fabianism was historically not like that. Fabianism, was far more secretive, quiet, and under the radar. It did not declare itself out in the open and loudly. Instead, it sought financial control of banks, the media, the legislature, the courts, and the education centers. It pushed ideas via the universities, via novels, via plays.
With this in mind (and there are many more differences in the flavors), one can think of democratic socialism as sharing the public ownership features of the marxist model, but also sharing the opposition to the very brute force that characterized traditional Marxism. This is why the entire framework is unique, in a sense, because it is not seeking violent revolution against the current control centers of the western world (therefore making it more like Fabianism), but at the same time it does want to assume ownership of the means of production (therefore making it more like Marxism). The latter point is why the reader should completely reject anyone who is trying to make the case that “democratic socialism has nothing to do with traditional socialism.” Actually it does. That is the point. The public ownership of the means of production is the goal of both marxism and democratic socialism. The (flawed) idea behind socialism is that the central authority has the knowledge to determine the proper allocation of scarce resources in order to meet the goals of consumers.
Democratic socialists claims that, contrary to Marxism, they want the government to obey the will of the people as expressed via the voting booth. Besides the more obvious point that once in power it is historically ignorant to assume that the “desire of the people” will take precedent over the desire of those actually wielding the power of coercion (those who operate the state), we make the more fundamental criticism that there are both economic and moral objections to the scheme of democratic socialism.
In a sense, democratic socialism is democracy perfected and fulfilled. It is the theory of democracy pushed to its logical conclusion and it is why the republican (not to be confused with the GOP) founders of the United States, for whatever non-libertarian flaws they had, were highly skeptical of democracy and it is why one of the most important Austro-libertarian theorists of our time wrote an entire screed against it. Democratic socialism, at a moral level, is the idea that by expressing one’s desires by voting, one can legitimately outsource the dirty role of plunder against the property owner. Ethically, democratic socialism proposes that one is morally justified in advocating that his neighbor be expropriated, if the role of expropriation is fulfilled by those empowered to do so by the voter himself.
Democratic socialists hide behind the curtain of the ballot box to accomplish what would be obviously wrong if done by the non-government actor. The majority of people, on the surface, claim to believe that it is not ethically justifiable to take from another what does not belong to them; but since democratic socialism is becoming increasingly popular, especially amongst the youth, we know that these people do not really take seriously the age-old ethical principle that it is wrong to steal and to aggress against one’s fellow man or his property. Democratic socialism then, is morally disastrous and operates under the illusion of being more ethically defensible than marxism. Marxists announced their unethical means toward their desired goals; but democratic socialists keep their means hidden behind of the veil of the vote.
Libertarianism as a positive political theory stands athwart any aim to justify the aggression of an individual and his property. The libertarian makes the case that a man has the moral right to be free and secure in his person and property by virtue of the fact that it is ethically wrong for one individual to initiate aggression against another. Profoundly, libertarianism also extends this principle to its logical conclusion and declares that, not only does no private citizen have the right to ignore it, but no group of people coming together and calling themselves a “government” can do what is wrong for the private citizen. Moreover, no amount of voting can vindicate the wrongful behavior of a government. The democratic socialist idea that declaring property “public” can justify trespasses and aggressions, has no foundation.
Economically, democratic socialism claims to work on behalf of the “people” as opposed to “big business.” One of the things that democratic socialists overlook is the inner contradiction in their position; namely, that if what they are pursuing really is “what the people want” then they wouldn’t need the state to do it. The state fundamentally distinct in the way it operates compared to the market. The market is the free and voluntary exchange of individuals whereas the government, by definition, is the agency in society that contradicts the free and voluntary exchange of individuals. For if the government was doing what the people would have chosen on their own, the government wouldn’t be needed. Thus, the democratic socialist arrangement is the systemic opposition of the will of the people under the guise of working on behalf of the will of the people. In reality, it is the working on behalf of one group of people (those that want, but do not have) over against another group of people (those that have). It is the politicalization of plunder.
Pushing deeper into economics now, we find that democratic socialism assumes that the free market is such that one person is always taking advantage of another. This is problematic on the basis that the free market, by definition, is such that each party in the exchange is demonstrating his preference for the good being received over the good being traded away. Because such an exchange is the result of voluntary action, we can therefore infer that each party anticipates being better off (i.e. profiting) from the exchange. Compare this free market arrangement with democratic socialism in which the government is given the authority to enforce whatever law the voter wants him to, despite the opinion of those who do not want to participate. In the free market, those who do not want to participate in a given exchange are free to go about their way peacefully. Not so with socialism. Those who do not pay their taxes, comply with labor laws, adhere to whatever regulatory standards are put in place, and so on, are forcefully prevented from doing what they will with their property.
Besides the moral problems, this has tragic consequences at an economic level as well. The democratic socialists, like all socialists, misunderstand the source of economic prosperity. They therefore assume that it is by laws that society can be made more prosperous and wealth can reach the less well off. But laws cannot bring into being that which the underlying economic conditions do not warrant. What I mean by this is that there are certain desires that central planners might have, but they have no idea whether and how these desires can be fulfilled. Moreover, they do not know whether their aims are constructive or destructive because there is no rational basis for their economic decision making. Even further still, they do not know the cost of pursuing these desires and what the society will lose out on if the society is forced to pursue the government’s ends.
The difference between capitalism and socialism, and the reason why there are only two basic models for a certain industry (say, healthcare), is the presence of a price mechanism. A price is the tool that human actors have on the free market to rationally allocate scarce resources according to their most needed ends. Because prices on the free market are paid voluntarily by human actors economic actors can know where capital should be employed in order to make a profit. But under a socialist model, there are no prices and therefore there is no rational foundation on which to make a determination regarding the allocation of scarce resources. How can a government, which runs things according to bureaucratic decision making (that is decision making without the tool of prices) have any knowledge whatsoever about whether they are improving society and working in accordance with the values of the consumers? The “consumers” under socialism have no choice in the matter!
Thus, “public” healthcare, education, agriculture, shelter, and so on are made worse off under an arrangement that is fixed by rules and regulations, wherein the individual running the enterprise cannot respond to consumer demand. It is the lack of the price mechanism that caused the socialist economies of history’s past to result in mass food shortages, destitute poverty, and so on. There was no build up of capital, no ability to save and invest and therefore grow the economy, just a handful of industries in existence, wasting mass amounts of resources while producing few economic goods. Socialism is an impossible pursuit.
Now, Bernie Sanders an all the other democratic socialists will cry out in opposition that the lack of socialism in the United States has cause tremendous pain for a great deal of people. There should be two things said in response. First: the western world has actually done staggeringly well in regards to creating a standard of living unparalleled in the history of the world. Think about just how well off the poor are in America compared to the poor around the world. This is due to the bits and pieces of capitalism that still remain; the fact that we still have prices, there is still a small ability to create capital and employ it to productive ends. But secondly, it is true that, in some ways, things are getting more difficult of a good many people. The reason for this is not the lack of socialism, democratic or otherwise. The reason for this is the fact that the United States (and indeed, the entire world), has been the victim of intervention after intervention. There has of course been an increase in rules and regulations but, much more significantly, there has been a complete war declared on the economy’s capital stock by way of a central bank that has the monopoly ability to increase the money supply and therein influence interest rates to the downside. This causes a magnificent misallocation of resources and an eradication of savings and true investment of capital. Without capital and savings, economies regress backwards. Things become more expensive, life becomes harder, leisure becomes more of an impossibility.
Over the years, increased government intervention and a central bank that is the antithesis of a capitalist system have worked together to challenge the gains promised by a capitalist order. Ironically, Bernie Sanders is working in unison with the very central bank that has destroyed the United States economy by expressing his desire that it keep interest rates low and continue to print more money. In other words, far from providing an antidote to the things that are plaguing this nation, Sanders is advocating an increase in the disease.
As the socialistic financial system deteriorates and Mises’ prophetic warning of the results of intervention come to reality, it seems that there are now only two alternatives: socialism and capitalism. Interventionism has failed us. As nations fall, the masses tend toward handouts, free stuff, and a covetous declaration of war on the wealthy. Socialism increases in popularity. Interventionism is considered by both the masses and the “intellectuals” to be not enough; it is held that only socialism can save us now.
What they do not realize is that we got into this mess because we have tended toward socialism this whole time. What they do not realize is that they are embracing the fulfillment and end game of rotten statist policies. They seek refuge in the very thing that they previously had only in small doses.
The end of interventionism has come. Whether socialism or capitalism awaits us is yet to be seen.